question regarding joing a solo practitionerbuy-in etc

[s204367]

My sister is completing her fellowship in cornea/refractive. She has an offer from a guy with a very busy practice in the burbs of a large northest city. He currently only practices gen, with some glaucoma and cataracts. He wants her to sign a 3 year contract, then after that if they get along discuss partnership potential....I've spoken to many cards docs and GI docs and surgeons...most sign a contract up front with say a 5 year buy in...the buyin being your sweat and labor at a substantially lower income over those 5 years...Also, in terms of a practices net worth...every doc writes off depreciation of equiptment...he was mentioning finding out what the practice is worth in 3 years, then coming up with a buy in.....

I say no way to that, but she keeps telling me the optho market in cities such as NY and Boston is so saturated, that that is how things work....I can afford to front her a few hundred thousand, and am pushing her to take out her own funding and get her own reftractive business going....

What are some of the contracts folks have been getting in a cornea/refractive field....do you agree with me, in that it is nuts to sign onto a long contract without any idea of a practice buyin??

THanks

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[orbitsurgMD]

My sister is completing her fellowship in cornea/refractive. She has an offer from a guy with a very busy practice in the burbs of a large northest city. He currently only practices gen, with some glaucoma and cataracts. He wants her to sign a 3 year contract, then after that if they get along discuss partnership potential....I've spoken to many cards docs and GI docs and surgeons...most sign a contract up front with say a 5 year buy in...the buyin being your sweat and labor at a substantially lower income over those 5 years...Also, in terms of a practices net worth...every doc writes off depreciation of equiptment...he was mentioning finding out what the practice is worth in 3 years, then coming up with a buy in.....

I say no way to that, but she keeps telling me the optho market in cities such as NY and Boston is so saturated, that that is how things work....I can afford to front her a few hundred thousand, and am pushing her to take out her own funding and get her own reftractive business going....

What are some of the contracts folks have been getting in a cornea/refractive field....do you agree with me, in that it is nuts to sign onto a long contract without any idea of a practice buyin??

THanks

The never-ending question.

Lots of practices place nebulous buy-in terms in an employment contract but firm non-compete terms. It places the physician employee at a huge disadvantage. I suggest at least hiring a labor contracts lawyer to review any contract you are serious about taking, that is if the contract doesn't have objectionable terms on its face.

She should check with the local hospitals' medical staff development officers to see whether there are startup funds available for new doctors; they are usually set up as a loan repayment scheme with guaranteed income up front and a principal forgiveness term that can be worked off or paid off. There are usually strings attached, like having to serve on hospital ER call and having to accept Medicare allowable and state Medicaid patients, which is usually a fair trade. You might not find that within a large city, but hospitals in a 60-80-mile radius of large cities make these deals.

 

[orbitsurgMD]

My sister is completing her fellowship in cornea/refractive. She has an offer from a guy with a very busy practice in the burbs of a large northest city. He currently only practices gen, with some glaucoma and cataracts. He wants her to sign a 3 year contract, then after that if they get along discuss partnership potential....I've spoken to many cards docs and GI docs and surgeons...most sign a contract up front with say a 5 year buy in...the buyin being your sweat and labor at a substantially lower income over those 5 years...Also, in terms of a practices net worth...every doc writes off depreciation of equiptment...he was mentioning finding out what the practice is worth in 3 years, then coming up with a buy in.....

I say no way to that, but she keeps telling me the optho market in cities such as NY and Boston is so saturated, that that is how things work....I can afford to front her a few hundred thousand, and am pushing her to take out her own funding and get her own reftractive business going....

What are some of the contracts folks have been getting in a cornea/refractive field....do you agree with me, in that it is nuts to sign onto a long contract without any idea of a practice buyin??

THanks

Remember, many contracts usually have terms that allow no-cause termination on 60 to 120-days notice. So in effect, the "contract" guarantees employment no longer than that, even from the date of signing. The idea of it being "three years" only allows the employer to hold off buy-in discussions to that length and to keep compensation issues under contract (which might not be in your interest and which would be a big red flag right there as it doesn't sound as if they are in any hurry to have a partner). It is best to have as short a term to buy in as possible, and best to have all the terms up front.

 

[s204367]

140,000 per year, plus retirement(40k). if she billes 2.5x her salary, then 25% of what she collects. She will be doing refractive as well. if she grosses over 400k from refractive, then 10% over that(great huh). 8 weeks maternity WITHOUT pay. At 2.5 years, they can discuss potential buy in. now, non-compete is illegal in MA, so she can just pack up and take off if she likes.

The salary sounds low for a cornea trained surgeon to me. Not having the terms of the buy-in up front, sound not good to me. What are the starting salaries like in NYC/Boston for a cornea trained doc from a top program??

 

[f_w]

Tell her to run. This deal stinks. Even for Boston.

 

[keye]

How exactly is f_w qualified to write on both Ophtho and Radiology boards???

 

[f_w]

How exactly is f_w qualified to write on both Ophtho and Radiology boards???

By being married to a cornea and refractive surgeon who has been through the shenaningans before that these deals tend to bring with them

 

[orbitsurgMD]

140,000 per year, plus retirement(40k). if she billes 2.5x her salary, then 25% of what she collects. She will be doing refractive as well. if she grosses over 400k from refractive, then 10% over that(great huh). 8 weeks maternity WITHOUT pay. At 2.5 years, they can discuss potential buy in. now, non-compete is illegal in MA, so she can just pack up and take off if she likes.

The salary sounds low for a cornea trained surgeon to me. Not having the terms of the buy-in up front, sound not good to me. What are the starting salaries like in NYC/Boston for a cornea trained doc from a top program??

Doesn't sound so special. $140K in Boston is not much given the costs of living there. But that is not uncommon in other popular but expensive places like Northern California.

401K. Big deal. You top out your own contribution at $15,500/yr and even the best corporate matches rarely top an additional 60% over max individual contribution, and most medical practices don't match anywhere near that. In any case, the max value of that is less than $10K. So big deal.

I have not seen so many contracts that base threshholds for bonus on what you bill but rather on what you collect. That actually might be to your benefit if you are seeing an insurance-dependent patient population, as your billing amounts are generally significantly above your collections. If you are doing mostly cash-pay LASIK, then it doesn't really matter. Is the 25% calculated on total collections, or only that amount collected above the 2.5x threshhold? (Probably the latter) How often do they calculate and pay the bonus, monthly, quarterly, annually? Obviously 25% paid on total collections is a much better deal.

The value of 10% on refractive receipts depends on the arrangements. If a big chunk is going to the laser center that is doing the marketing and has optometrists doing the preoperative and postoperative care, and charges are reasonable (i.e. no $999 for both eyes crap), that is better than if she has to do all the pre- and postoperative work and the practice owns the laser. (BTW, having the right lasers is important; does she like the equipment they have available?) Even at the highest-prices in most markets, 10% on a two-eye case is probably not going to exceed $600. And that is for femtosecond YAG (Intralase) flap construction. The really bad part of this deal here is the $400K production floor on refractive alone to see any bonus at all. At $3K/2-eyes, she has to treat 133 patients to see a cent in bonus. That stinks. For that kind of deal, the practice ought to be coming to the table with a salary guarantee of $250K or more.

Just to give you an illustration of how bad this offer could be, model the practice this way: if she bills $1.2 million and collects $700K, half of which comes from LASIK and half from her indemnity med-surg practice, she gets no bonus on the LASIK production--nothing-- and no bonus on the med-surg production either. She gets the $140K plus whatever the practice pays in 401K match (which she can't even call her own until she is fully vested!). If she really takes off and she bills $2 million, collects $1.2 million, again evenly splitting receipts between refractive and indemnity, she gets her base plus $62.5K on percentage over $350K (2.5x$140K) plus $20K for her 10% over $400K collected on LASIK. Total, $223K. In the first case, she gets 20% on collections; in the second case, she gets only 18.6%. Either is poor reimbursement, but paying a lower percentage still for increasing collections by 70% is ridiculous. This practice isn't looking for a doctor, they're looking for a sucker.

 

[KHE]

Doesn't sound so special. $140K in Boston is not much given the costs of living there. But that is not uncommon in other popular but expensive places like Northern California.

401K. Big deal. You top out your own contribution at $15,500/yr and even the best corporate matches rarely top an additional 60% over max individual contribution, and most medical practices don't match anywhere near that. In any case, the max value of that is less than $10K. So big deal.

I have not seen so many contracts that base threshholds for bonus on what you bill but rather on what you collect. That actually might be to your benefit if you are seeing an insurance-dependent patient population, as your billing amounts are generally significantly above your collections. If you are doing mostly cash-pay LASIK, then it doesn't really matter. Is the 25% calculated on total collections, or only that amount collected above the 2.5x threshhold? (Probably the latter) How often do they calculate and pay the bonus, monthly, quarterly, annually? Obviously 25% paid on total collections is a much better deal.

The value of 10% on refractive receipts depends on the arrangements. If a big chunk is going to the laser center that is doing the marketing and has optometrists doing the preoperative and postoperative care, and charges are reasonable (i.e. no $999 for both eyes crap), that is better than if she has to do all the pre- and postoperative work and the practice owns the laser. (BTW, having the right lasers is important; does she like the equipment they have available?) Even at the highest-prices in most markets, 10% on a two-eye case is probably not going to exceed $600. And that is for femtosecond YAG (Intralase) flap construction. The really bad part of this deal here is the $400K production floor on refractive alone to see any bonus at all. At $3K/2-eyes, she has to treat 133 patients to see a cent in bonus. That stinks. For that kind of deal, the practice ought to be coming to the table with a salary guarantee of $250K or more.

Just to give you an illustration of how bad this offer could be, model the practice this way: if she bills $1.2 million and collects $700K, half of which comes from LASIK and half from her indemnity med-surg practice, she gets no bonus on the LASIK production--nothing-- and no bonus on the med-surg production either. She gets the $140K plus whatever the practice pays in 401K match (which she can't even call her own until she is fully vested!). If she really takes off and she bills $2 million, collects $1.2 million, again evenly splitting receipts between refractive and indemnity, she gets her base plus $62.5K on percentage over $350K (2.5x$140K) plus $20K for her 10% over $400K collected on LASIK. Total, $223K. In the first case, she gets 20% on collections; in the second case, she gets only 18.6%. Either is poor reimbursement, but paying a lower percentage still for increasing collections by 70% is ridiculous. This practice isn't looking for a doctor, they're looking for a sucker.

Interesting discussion. How much billing should a new ophthalmologist of this type (corneal fellow) be expected to generate? Are they normally expected to generate their own patient flow, or they going to take on the over flow from an already busy practice? Is it a combination of the two? What percentage of revenue should an associate ophthalmologist be expecting to receive under those varying circumstances? I also read the retirement package as a 40k, (40 thousand dollars which would be conceivable under a pension/profit sharing arrangement) and not a 401k which would max out at $15500 plus any match. Who pays malpractice premiums, CE costs, association dues, licensure fees? What is this person's "total" compensation going to be....or in other words...what is the total cost to the owner doctor?

 

[orbitsurgMD]

Interesting discussion. How much billing should a new ophthalmologist of this type (corneal fellow) be expected to generate? Are they normally expected to generate their own patient flow, or they going to take on the over flow from an already busy practice? Is it a combination of the two? What percentage of revenue should an associate ophthalmologist be expecting to receive under those varying circumstances? I also read the retirement package as a 40k, (40 thousand dollars which would be conceivable under a pension/profit sharing arrangement) and not a 401k which would max out at $15500 plus any match. Who pays malpractice premiums, CE costs, association dues, licensure fees? What is this person's "total" compensation going to be....or in other words...what is the total cost to the owner doctor?

She might be able to shelter 40K under a Keogh or similar self-employed deal. I suggest you see an accountant about what she could expect as an employee. Unless she is being hired as an independent contractor, which it does not sound as if she is, I doubt she can contribute that much tax-deferred.

I suggest you inquire to the practice about their current receipts mix, indemnity, Medicare and cash-pay. That would give you an indication about what she might see starting out. Second, do they have an established means to attract cash-pay patients right now? If not, I don't think she will be generating a lot of cash receipts at first.

Typically costs of CE and time allowed are covered by the practice and are not folded into the salary figure (except by headhunters, who like to boost numbers this way.) CE (and CE travel costs) is required for maintaining licensure and keeping board certification and should be part of the overhead expenses of any professional practice. Same goes for license fees, association fees, hospital staff fees, malpractice insurance and other fees associated with being in practice. Placing them in the compensation package and not in the overhead column is being dishonest; they are mandatory and necessary operating expenses, like rent.

 

[f_w]

Are they normally expected to generate their own patient flow, or they going to take on the over flow from an already busy practice?

Interesting question !

While negotiating for these kind of jobs, the principal wants to 'cut back' and has 'so many patients that he has to send them away'. So the official version is that you will be fed patients in order for your practice to grow. You don't know that until you work for them for a year. Assume that you have to build your practice pretty much from scratch (so don't bank on collecting 600k in year one )

What percentage of revenue should an associate ophthalmologist be expecting to receive under those varying circumstances?

Depends on the market. Percentage is higher the further away from tall buildings you are and the more corn is being grown around you.

I also read the retirement package as a 40k, (40 thousand dollars which would be conceivable under a pension/profit sharing arrangement) and not a 401k which would max out at $15500 plus any match.

This could be a defined benefit plan. Again, the details are key here. When is this contribution vested etc.

Who pays malpractice premiums, CE costs, association dues, licensure fees?

Should be paid by the practice. It is the cost of doing business. If it is paid by the practice, it is pre-tax. If you pay out of pocket, you have to deduct it as employee business expense and that only works if you are beyond 2% of your AGI or something like it (and you get squat if you pay alternative minimum tax which is pretty much a given at 140k in a high-tax state as MA).

 

[f_w]

Btw. My comment on the 'quality' of this deal was not in regard to the offered salary. 140k for a new associate seems par for northeastern metro areas.

My concern is about the long partnership track without a clear outline as to how the practice valuation will be done if partnership is offered. Someone intent on actually taking on a partner will put down in a memorandum of understanding how the partnership process is structured:
- how the hard assets of the practice are handled (do you become partner in the real estate corporation as well or does the practice 'rent' the office space from a retired partner at inflated prices. do you gain ownership in the equipment, e.g. lasers)
- is there a 'goodwill' component to the buy-in, if yes how is it calculated
- do you have to buy into accounts receivable (AR). How is AR defined (120 days after discounts?) Will YOUR contribution to AR be deducted before you buy in (if it isn't, the harder you work for the 3 years, the more expensive your buy-in is going to get).
- what are the buy-out provisions for the senior partner

The 'lets get three years of work out of you and then I'll decide how unattractive I make buy-in for you' system has burned plenty of 'YOs'.

Oh, and don't ever sign a physician service contract without a prior review by a contract attorney familiar with the local legal environment. It is the best $1000 you will ever spend.

 

[KHE]

Typically costs of CE and time allowed are covered by the practice and are not folded into the salary figure (except by headhunters, who like to boost numbers this way.) CE (and CE travel costs) is required for maintaining licensure and keeping board certification and should be part of the overhead expenses of any professional practice. Same goes for license fees, association fees, hospital staff fees, malpractice insurance and other fees associated with being in practice. Placing them in the compensation package and not in the overhead column is being dishonest; they are mandatory and necessary operating expenses, like rent.

Well....that line of thinking is the employEE line of thinking. If this person wants to become a partner, or to buy the practice, they have to understand the employER line of thinking.

When someone is offered $140k in compensation and a bonus structure to go along with it, the associate doctor needs to understand that they cost the practice a LOT more than just the $140k in salary to bring them on. In fact, with malpractice, health insurance, payroll taxes, retirement benefits, licensure fees, CE compensation, travel expenses and other associated overhead it is conceivable that this person could cost the practice $200k per year before the first patient even walks through the door.

Now...I'm not suggesting in any way that what this person has been offered here is fair, or is even a "good offer." But I think it's important for associate doctors to not simply look at what the "salary" is and say "Hey! That's not fair!" They really have to understand the total cost to the practice to bring them on.

 

[KHE]

Btw. My comment on the 'quality' of this deal was not in regard to the offered salary. 140k for a new associate seems par for northeastern metro areas.

My concern is about the long partnership track without a clear outline as to how the practice valuation will be done if partnership is offered. Someone intent on actually taking on a partner will put down in a memorandum of understanding how the partnership process is structured:
- how the hard assets of the practice are handled (do you become partner in the real estate corporation as well or does the practice 'rent' the office space from a retired partner at inflated prices. do you gain ownership in the equipment, e.g. lasers)
- is there a 'goodwill' component to the buy-in, if yes how is it calculated
- do you have to buy into accounts receivable (AR). How is AR defined (120 days after discounts?) Will YOUR contribution to AR be deducted before you buy in (if it isn't, the harder you work for the 3 years, the more expensive your buy-in is going to get).
- what are the buy-out provisions for the senior partner

The 'lets get three years of work out of you and then I'll decide how unattractive I make buy-in for you' system has burned plenty of 'YOs'.

I agree with this....

ANyone who is seriously looking for a partner should be willing to spell out in writing the terms and conditions under which they will allow that to happen.

 

[orbitsurgMD]

Well....that line of thinking is the employEE line of thinking. If this person wants to become a partner, or to buy the practice, they have to understand the employER line of thinking.

When someone is offered $140k in compensation and a bonus structure to go along with it, the associate doctor needs to understand that they cost the practice a LOT more than just the $140k in salary to bring them on. In fact, with malpractice, health insurance, payroll taxes, retirement benefits, licensure fees, CE compensation, travel expenses and other associated overhead it is conceivable that this person could cost the practice $200k per year before the first patient even walks through the door.

Now...I'm not suggesting in any way that what this person has been offered here is fair, or is even a "good offer." But I think it's important for associate doctors to not simply look at what the "salary" is and say "Hey! That's not fair!" They really have to understand the total cost to the practice to bring them on.

So you would have no objection to charging the new employEE surgeon the costs of recruitment, including headhunter fees, thinking now as an employER, eh?

Operating costs are what they are, some fixed and some variable. Malpractice insurance is a mix of the two. Most of the others are usually capped. Health insurance is not some giant unknown either. Social Security is split employer/employee unless independent contracting, when it is fully on the contractor. Pretending that these are "compensation", especially things such as licensing fees is nothing more than shifting overhead onto the employee. Just because the expense is unitized to the provider doesn't make it any less overhead.

As for the up-front costs, I really doubt that unless you are wasteful they will exceed the salary before the hire starts. Unless you have badly miscalculated your need to hire, most practices are topside on new hire costs only a few months into the new doctor's employment. Filing claims under existing doctors accounts to enable collection while panel applications are underway, and the catchup allowed by Medicare generally accelerate the positive cash flow on the new hire. You may take a $200K line of credit on a new hire, but unless you are doing build-out and buying lots of new equipment and hiring new staff to enlarge your practice, you probably won't run that out. Payroll taxes, malpractice premium payments, salary, health insurance premiums are all paid intermittently, so the practice won't have to front those except for the first few months.

 

[KHE]

So you would have no objection to charging the new employEE surgeon the costs of recruitment, including headhunter fees, thinking now as an employER, eh?

Operating costs are what they are, some fixed and some variable. Malpractice insurance is a mix of the two. Most of the others are usually capped. Health insurance is not some giant unknown either. Social Security is split employer/employee unless independent contracting, when it is fully on the contractor. Pretending that these are "compensation", especially things such as licensing fees is nothing more than shifting overhead onto the employee. Just because the expense is unitized to the provider doesn't make it any less overhead.

As for the up-front costs, I really doubt that unless you are wasteful they will exceed the salary before the hire starts. Unless you have badly miscalculated your need to hire, most practices are topside on new hire costs only a few months into the new doctor's employment. Filing claims under existing doctors accounts to enable collection while panel applications are underway, and the catchup allowed by Medicare generally accelerate the positive cash flow on the new hire. You may take a $200K line of credit on a new hire, but unless you are doing build-out and buying lots of new equipment and hiring new staff to enlarge your practice, you probably won't run that out. Payroll taxes, malpractice premium payments, salary, health insurance premiums are all paid intermittently, so the practice won't have to front those except for the first few months.

No...I'm not suggesting that the costs be included as part of a compensation package per se, but a new doctor joining a practice (particularly if they are desirous of having an ownership role at some point) should have some understanding that what they cost the practice to have them there is a LOT more than just their salary. At least a rudimentary understanding of that will sometimes help put a compensation package offered into better perspective, particularly when that compensation package has some component of billings received to it.